Customer Lifetime Value (CLV), in general, refers to an estimation of an overall value that an organization may derive from customers during their association with the organization. The overall value may be in terms of overall profitability or revenue generated by the association of the customers with the organization. The estimation of the CLV is generally based on an expected lifetime period for which a customer stays associated with the organization and makes transaction for services, goods or products associated with the organization.
The expected lifetime period is generally estimated based on certain parameters that are associated with a customer's present and past purchasing behavior. The parameters can include frequency of purchase, propensity to make purchase, purchase recency and quantum of purchase during a predefined time period. All such parameters allow the organization to predict CLV in terms of overall profitability or revenue.
The CLV can also be separately estimated for different classes of customers, such as, based on demographics, age, expected lifetime in years and income of the customers. Such class based estimation enables the organization to determine strategies that are customized according to the requirements and behavior of a particular class of customers and thus improves profitability of the organization. The CLV also enables an organization to streamline separate business strategies for separate classes of customers to maximize overall profitability. Accordingly, the organization may provide targeted promotions to customers to improve their CLV.
It should be appreciated by those skilled in the art that any block diagrams herein represent conceptual views of illustrative systems embodying the principles of the present subject matter. Similarly, it will be appreciated that any flow charts, flow diagrams, state transition diagrams, pseudo code, and the like represent various processes which may be substantially represented in computer readable medium and so executed by a computer or processor, whether or not such computer or processor is explicitly shown.